The Evil-Mongering Of The American Medical Association

In his war against terrorism, President George W. Bush declared a simple, binary formula to judge the world: "Either you are with us, or you are with the terrorists." Now, Obama and the Democratic leadership have borrowed the same formula to draw the battle lines over health care reform, dividing the country into those who are for ObamaCare and those who are evil-mongers.

But the entities that will be most injurious to the nation's health are not so much in the evil-mongers' group but the first group, including the American Medical Association--a doctors' cartel that has controlled the medical labor market in the U.S. like its personal fiefdom for a century. Instead of "palling up" with it, President Obama should do everything in his power to break its choke-hold and bring physician salaries--among the biggest drivers of health care costs--back down to Earth.

The association has managed so far to escape the wrath of MoveOn.org and other Democratic apparatchiks by muting its opposition to their beloved public option--the proposed government-run health care plan--and joining a coalition of industry groups pledging to cut $80 billion in health care costs over the next decade. The president has been touting these savings as if they have been signed, sealed and delivered to the bank. But anyone who buys--even for a nano-second--that anything good can come for taxpayers or patients from an alliance between Big Government and Big Medicine should see a doctor.

The fact of the matter is that even if the AMA delivered its share of these "savings," it wouldn't begin to make up for the costs it imposes on the country--both in lost dollars and poorer patient care.

According to a 2007 study by McKinsey&Company, physician compensation bumps up health care spending in America by $58 billion annually,on average, because U.S. doctors make twice as much as their OECD peers. And even the poorest in specializations like radiology and surgery routinely rake in around $400,000 annually.

Doctors--and many Republicans--constantly carp about the costs of "defensive medicine" because it forces providers to perform unnecessary procedures and tests to insulate them from potential lawsuits. But excessive physician salaries contribute nearly three times more to wasteful health care spending than the $20 billion or so that defensive medicine does. "While the U.S. malpractice system is extraordinary," the study notes, "it is only a small contributor to the higher cost of health care in the United States." Meanwhile, other studies have found that doctors' salaries contribute more to soaring medical costs than the $40 billion or so that the uninsured cost in uncompensated care--the president's bete noir.

But how has the AMA managed to get away with such princely remuneration that ordinary mortals in other professions--even ones such as law and engineering that also require arduous training--can only dream of? After all, in a functioning market, a profession offering such handsome returns would become a magnet for more people who, over time, would bid down "excess" wages.

But that's not how it has worked in medicine since 1910 when the Flexner report, commissioned by the AMA, declared that a surplus of substandard medical schools in the country were producing a surplus of substandard doctors. The AMA convinced lawmakers to shut down "deficient" medical schools, drastically paring back the supply of doctors almost 30% over 30 years. No new medical schools have been allowed to open since the 1980s.

Still, the AMA along with other industry organizations until recently had issued dire warnings of an impending physician "glut" (whatever that means beyond depressing member wages), even convincing Congress to limit the number of residencies it funds to about 100,000 a year. This imposes a de facto cap on new doctors every year given that without completing their residencies from accredited medical schools, physicians cannot obtain a license to legally practice medicine in the U.S. Even foreign doctors with years of experience in their home countries have to redo their residencies--along with taking a slew of exams--before they are allowed to practice here.

The upshot of all this is that now the country is facing an acute shortage of doctors that even the AMA and its sister organizations cannot deny anymore. Indeed, the Association of American Medical Colleges, a private nonprofit industry advisory group whose forecasts effectively determine how many new doctors will be allowed at any given time, reversed itself in 2002 issuing this belated apology: "It now appears that those predictions [of a glut] may be in error."

One way to relieve the shortage of providers that the medical industry has created would be for the AMA to abandon its aggressive game of turf-protection and allow nurses, midwives, physician assistants and practitioners of alternative therapies such as chiropractors, to offer standard treatments for routine illnesses without physician supervision. For instance, midwifery, once a robust industry in this country, has been virtually destroyed, thanks to the intense lobbying against it by the medical industry. In 1995, 36 states restricted or outright banned midwifery, even though studies have found that it delivers equally safe care at far lower prices than standard hospital births.

Similarly, the AMA long regarded chiropractory as tantamount to "quakery," and barred doctors from professionally associating with chiropractors or making referrals to them, something that the courts overturned as an illegal violation of antitrust laws in 1987. But the AMA is undeterred. Three years ago it launched something called the "Scope of Practice Partnership," a self-appointed watch-dog group, whose express purpose is to ensure that chiropractors don't offer any services that might be remotely considered outside their legal scope.

The AMA does all this in the name of patient protection. But Milton Friedman, the late Nobel laureate, noted in 1961 that the AMA's licensure and other efforts to control the supply of doctors and services had produced a net diminution of care. "Licensure has reduced both the quantity and quality of medical practice," he wrote in Capitalism and Freedom. "It has retarded technological development both in medicine itself and in the organization of medical practice."

Although Friedman's views were controversial at the time, they now enjoy an overwhelming consensus among economists. That's because it has become painfully clear that the net effect of AMA-type restrictions hasn't been to make better quality doctors available to more people, but to reduce existing options, especially in rural and other under-served areas.

Obama and his fellow Democrats blame the current health care mess on the free market. But a free market can't exist when a cartel with the ear of the government is allowed to control a key input for its own self-aggrandizement. If the president is serious about lowering health care costs instead of advancing an ideologically driven government takeover of the industry, he should be doing everything in his power to disband it--not cozy up to it.

Shikha Dalmia is a senior analyst at Reason Foundation and a biweekly Forbes columnist. Ben Tonkin provided valuable research assistance for this column.

Shikha Dalmia is a senior analyst at Reason Foundation and winner of the inaugural Bastiat Prize for Online Journalism. She served on the editorial board of the Detroit News for nearly a decade. She is a frequent contributor to Reason magazine and The Wall Street Journal as...